Lenders to Air India have offered to extend more than Rs 35,000 crore to the Tatas at a weighted-average yield of 4.25% – the rate at which the sovereign borrows for a year, said people aware of the matter.
Tata Sons-promoted Talace, which will be taking over Air India following privatisation, had invited bids for a one-year general purpose loan of ₹23,000 crore from the airline’s existing lenders.
Special Resolution
This includes ₹18,000 crore for taking over Air India’s debt and an additional ₹5,000 crore for initial operating costs, as reported previously. Talace had been declared the successful bidder for Air India in October.
The weighted-average yield of 4.25% is the cut-off rate at which the government last raised one-year money through an auction of 364-days treasury bills.
“It is an overwhelming response considering that the loan is unrated and unsecured and yet the pricing is near sovereign,” said an executive at one of the lenders, which has sanctioned nearly ₹3,000 crore. “Further, it shows lenders’ confidence in the Tatas despite them informing banks that it would be at least six months before they can make any projections for the business.”
Tata Sons did not respond to queries.
Large commercial banks such as State Bank of India, Bank of Baroda, Punjab National Bank and Union Bank of India have approved credit limits in the range of ₹12,000 crore to ₹3,000 crore, said one of the persons cited above. The Tatas will inform each lender about the allocation in the first week of January and draw sanctioned limits between January 10 and 15, the same person said. Banks that have sanctioned loans to the Tatas have passed a special resolution to lend to Talace below the marginal cost of fund-based lending rate (MCLR), which is currently pegged at over 7% for most banks.
“Tatas had originally planned to complete the refinance of the Air India loan before Christmas, ahead of January 23, which is the long-stop date to close the Air India deal with the government,” said the second person cited above. But this was not possible due to several “conditions precedent” stipulated by the government. It appears that some of these will now be executed after the takeover, the same person said.
The new debt raised by Talace will replace the earlier credit raised by Air India at 9-10%. Talace had offered ₹18,000 crore as part of its winning bid – ₹15,300 crore for Air India’s existing debt and ₹2,700 crore to be paid as cash to the government.
The deal with the government does not include land and buildings. As per the agreement, Tata Sons will retain all the employees of Air India, at least for a year. Air India has a fleet of 117 aircraft.
